U.S. Retail Sales Were Surprisingly Resilient in April

• Retail sales were down 0.2% M/M in April, as expected.
• Excluding autos, retail sales were up 0.5% M/M in April, which was higher than expected.
• Sales at gasoline stations were down 0.4% M/M despite the fact that gas prices continue to rise.
• The drivers of retail sales activity were fairly broad based.

In April, retail sales fell 0.2% M/M which was in line with expectations and was lower than the 0.2% M/M pace in March. Excluding autos, retail sales were up 0.5% M/M, while excluding autos and gasoline sales (another good measure of core retail sales) retail sales were up 0.6% M/M. On a 3-month annualized basis, retail sales were down 1.4%.

Retail activity was surprisingly resilient in April across a number of categories. Only three of thirteen categories were down. Electronics were up 1.4% M/M, and building materials were up 1.9% M/M in April. Clothing posted a reasonably strong 0.7% M/M gain and sporting goods were up 0.4% M/M. General merchandise was up 0.5% M/M in April. Monthly declines were recorded for motor vehicles and parts which fell 2.8% M/M and gasoline station sales, which fell 0.4% M/M. Clearly consumers are still spending on some level, despite the numerous headwinds that are creating a difficult retailing environment. This, in itself is surprising to us, especially in light of the 20K job loss in April, which was the fourth consecutive month of job losses. Consumers apparently have not been rattled by such factors, and could be taking advantage of heavy discounting by retailers to keep activity chugging along.

On balance this report leaves more questions than answers as it runs counter to our expectations and could end up being a one-off. It could be that consumers, in anticipation of the federal government rebate checks, are spending that money before they receive it. We do think that ultimately the confluence of downside factors that continue to gather traction, namely a weak labour market, lacklustre income gains, evaporating housing wealth and general economic pessimism will have a negative impact on consumer behaviour. Moreover, inflation remains higher than retail sales growth, which means consumer's purchasing power is ultimately eroded. As such, we expect that there is still downside for the U.S. consumer which underpins our view that the Fed has further scope to cut rates.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.